Independent journalism on fracking, onshore oil and gas and the reactions to it

Mortgage uncertainty in fracking areas, despite government assurances

There’s continuing uncertainty about the future impact of unconventional oil and gas sites on house prices and mortgage lending.

Last week, Henry Smith, MP for Crawley, raised the issue in parliament after Santander withdrew a mortgage offer to one of his constituents on a house six miles from Balcombe, where Cuadrilla has been exploring for oil. The bank said its valuer had not been able to assess whether the property would be physically affected by the construction of rigs or drill heads and so could not assess its value.

The Energy Minister, Michael Fallon, told parliament “There is no reason to expect that any activities undertaken to extract shale gas will have any adverse effect on individuals’ ability to secure a mortgage on properties nearby. There has been no evidence of any such effect in the UK to date in over half a century of oil and gas exploration and production.”

But the Royal Society of Chartered Surveyors (RICS) suggested that unconventional oil and gas sites would probably be taken into account in future when valuing a property and assessing a mortgage application. The organisation’s spokesperson, Rebecca Hunt, said surveyors were required to note if there were “environmental considerations to be taken into account.”

She said “It is likely that in time fracking activity will eventually come under the necessary ‘due diligence’ [a review of all relevant facts] during the investigation of title and subsequent valuation of a property, in a similar way ‘previous mining activity’ currently applies to house valuations.”

Neither RICS nor the Council for Mortgage Lenders (CML) have any guidance on valuations in fracking areas, though RICS said it was working with the government on developing a policy on properties near energy infrastructure.

The CML said mortgage lenders were guided by a surveyors’ opinion on the value of a property and, according to RICS, valuations are based mainly on market value and comparable evidence. RICS said at present there were few sales of property in areas directly affected by fracking and “commentary on any detrimental effects on property value and approvals would be premature”.

This could change in the next few years as energy companies begin exploration. Coastal Oil and Gas has planning permission to drill four boreholes at four sites in the Vale of Glamorgan. Celtique Energie has submitted a planning application for a site at Wisborough Green and is due to submit another at Fernhurst, both in West Sussex. Cuadrilla has fracked at Preese Hall in Lancashire and has submitted an amended application to explore at Balcombe, also in West Sussex. Next year, the government is due to sell the next round of onshore oil and gas exploration licences.

Santander reinstated its mortgage offer when it became clear that although the property was in a area granted a licence for exploration, it was not actually near the exploration site. But its response to Investigating Balcombe and Cuadrilla suggests that banks will be concerned about lending on properties close to fracking sites and that they could withdraw or change offers made in the past.

Santander’s spokesman, Jonathan Akerman, said: “The conveyancer advised the valuer that the address had been identified on an environmental report as being “on site” e.g. within 1.8 kilometres of a drill head on the Cuadrilla site at Balcombe.”

He said the valuer had not be able to assess the property’s risk or value. “It would not have been in the customer’s interests to buy such a property because if it had been damaged by construction or its value had been affected, the customer would still be responsible for the mortgage.” And he added: “One day it may be that exploration takes place several hundred metres under the ground. Santander reserves the right to amend or withdraw mortgage offers.”

We asked Mr Akerman whether this meant that Santander would have to determine that a property would not be physically affected by the construction of rigs before it would offer a mortgage and that a mortgage would not be offered if that could not be determined.

The company’s response, this time from Ali Rolls, Santander’s Media Relations Manager, was: “Santander needs to know that its security will continue to exist for the life of the mortgage and there is no intention to demolish it. In the current case the valuer was unsure about the information he had received and whether there was an intention to demolish or significantly alter the property. In fact there is no intention and therefore the security is satisfactory. Santander, like many lenders, has provided mortgages in areas where mining has occurred, in one form or other, for many years.”